I feel like keeping people separated by skill level is a poor choice for several reasons, and it's for those same reasons that I don't even think an FNM should motivate players to split up through different prize structure. Everyone has mentioned already how splitting them up can prevent newer players from improving. That's a pretty obvious downside.

But, more importantly, it segregates the community.

Segregation of a community is generally the first step toward dissolving a community altogether. I'm not saying TOs and judges should be forcing anyone to make new friends against their will, but, if players don't integrate and get to know the full community, both the store and the larger magic community will incur losses. Looking at it as one big event, it doesn't seem like a big deal, but I think there's a complicated, significant social dynamic at work, and it's part of the reason Magic is such a popular game.

For example, picture a hypothetical LGS that has about 16-20 players attend FNM regularly. A regular, Ben, is an inexperienced player that got into magic after buying some intro decks and playing with his friends over the holiday break. He and his friends go to FNM together and sit together before matches start. He meets a veteran named Ashley during one of their games and, though he gets completely destroyed 2-0 in their match, they get along pretty well and find out they have a lot in common. Skip ahead to the next week: All of Ben's friends have extra band practice Fridays and won't be able to go back to FNM for a month. Normally, Ben would just chill at home and play Xbox or something, but since he met Ashley last week, he knows there's at least one person who will hang out with him and welcome him with her friend group. As a result, Ben continues going to FNM over the next month even as his normal friend group is gone.

Now, split into an alternate universe where players were instead sorted into two events by skill, either as mandatory based on their record or by suggestion from the store. Ben's odds of meeting someone with whom he gets along are 50% of those in the first universe. Ben never met Ashley in this one. When his friends stop going because of band practice, he doesn't either. And, when the month is over and a new Friday begins, universe A Ben encourages all of his friends to come back to FNM. Universe B Ben says “Eh, I guess Magic was fun for awhile, but I'm pretty done with that.”

And just like that, the LGS in Universe B lost 10%+ of its regulars because of cliques. And I ain't talking about faeries.

This may seem unrealistic and stupid if you take it as just a hypothetical situation. Of course, this exact situation won't often come up. Statistically, however, splitting your LGS in half will, at least among people who go to hang out with friends, half the number of requisite absences before an entire group decides they don't want to show up. This can be the difference between long-term growth and long-term attrition.